As a former Executive Director of the World Bank I know that the columnists of the Financial Times have more voice than what I ever had, and therefore they might need some checks-and-balances.
Currently, having probably trampled some delicate ego, I am a persona non grata at FT.
Would the child shouting out “the Emperor is naked” have his observation published in FT? Would the child now need a PhD for that?

For more see "A Blog is Born" at the very bottom.

May 29, 2015

Sir, I refer to your “Draghi’s impatience at the slow pace of reform” May 29. In it you write: “Mr. Draghi’s latest intervention betrays impatience [with the lack of structural reform] that he risks stepping across the border that separates his sphere from that occupied by the democratically elected… Institutions such as the ECB play a valuable role when providing advice and gentle advocacy. But any reforms that appear to arise at the bequest of an unelected official, particularly one with such power as Mr Draghi, may struggle to take root”.

I hope you are not trying to imply that the former chair of the Financial Stability Board is not speaking out against the stupidity of the bank regulations he was partly responsible for, only out of respect to local politicians. That defense strategy of Mr. Draghi is not acceptable.

Really, unless blessed with eternal ignorance, how can bank regulators live with themselves knowing what they are doing?

Really how can journalists live with themselves knowing how they silence truths?

PS. Is there anything as stupid and paternalistic as regulators forcing bankers to consider risks they already perceive?

Smithers writes: “Productivity improves with the amount of capital per employee, and the efficiency with which it is used…. We do not know how to improve the efficiency with which capital is used”.

Yes we do! And the first thing to do is to eliminate those odiously manipulating credit-risk-weighted capital requirements for banks, which distorts all the allocation of bank credit to the real economy.

Of course bonuses distorts but, in the great scheme of things, there is little to be achieved correcting for that, in the bigger companies where the problem is present, if we do not allow all “the risky” SMEs and entrepreneurs to have fair access to bank credit, because of outrageously dumb regulations.

Really, unless blessed with eternal ignorance, how can bank regulators live with themselves knowing what they are doing?

I have sure blown my whistle. On my TeaWithFT blog I have, with this, 141 comments directed to Gillian Tett over the years. Surely more than half of these have to do with the lunacy of bank regulators.

With their credit-risk-weighted capital (equity) requirements for banks, that favors lending to what is perceived as safe over what is perceived as risky (as if that would be needed) they manipulate and distort the bank credit markets… clearly foul play. And all that for absolutely no good reason, since all major bank crisis have only resulted from excessive exposures to what was ex ante perceive as risky but that ex post turned out to be risky.

Sir, could you please ask Ms. Tett, as an anthropologist, to explain why journalists like her give so much more credence to those who for unexplained reasons have been named bank regulators, than to ordinary bankers who at least have to compete with other bankers… or citizens like me?

For instance from where can a professional like Ms. Tett derive the notion that a Mario Draghi, just because he was named chair of the Financial Stability Board by some unknown bureaucrats, knows more about risk managements and how banks should behave than any ordinary banker or finance professional?

If simply stating: “I am the regulator” makes someone less prone to make mistakes or to behave badly than the one being regulated, and to have that nonsense believed by journalists, then we are definitively screwed.

PS. For instance, before the approval of Basel II, I loudly blew the whistle on the dangerous systemic risks of using credit rating agencies too much in bank regulations… both as an Executive Director at the World Bank and in FT. Nobody wanted to hear it
L

If you set the weight for the capital (equity) requirements for banks when lending to government at 0%, and at 100% when lending to SMEs, that means that banks will lend more and at lower relative rates to the government than to the SMEs. And that means de facto you believe that government bureaucrats are more productive using bank credit than SMEs.

Well, I refuse to believe that. I believe that if you believe something like that, you are either extremely dumb or a communist.

And I do believe that good non-distortive regulation alone will go a long way to restoring faith in markets.

But if you in FT insist on keeping mum on the fact that regulators are distorting and are manipulating the bank credit markets… I must ask: Sir Financial Times, do you know right from wrong?

Sir, Martin Wolf writes: “Houston, we have a problem. We have a great deal of evidence that too much finance damages economic stability and growth, distorts the distribution of income, undermines confidence in the market economy, corrupts politics and leads to an explosive and, in all probability, ineffective rise in regulation. This ought to worry everybody.” “Why finance is too much of a good thing” May 27.

When I was an Executive Director in the World Bank 2002-2004 there were a lot of discussions about “debt sustainability”. I hated it… because it all sounded like a torturer calculating how much pain you could inflict before your tortured fainted.

Debt is great; there never is enough of it, as longs as you know what to do with it, and you truly believe you can repay it.

All other financing, forced down the throat of debtors…odious credit, is much worse than feeding geese to produce foie gras... something that at least has a purpose.

It all comes down to the same problem, we are in hands of regulators who want to regulate more than what they want to know what they are regulating for. And it’s our own fault, more Martin Wolf’s than mine, for not calling their bluff.

Sir, Martin Wolf writes: “It is very costly to police markets riddled with conflicts of interest and asymmetric information. We do not, by and large, police doctors in this way because we trust them. We need to be able to trust financiers in much the same way.” “Why finance is too much of a good thing” May 27.

And of course it is hard, and absolutely politically incorrect to disagree with that… but still there is a question that should nag us:

Would there be financial markets in the absence of conflicts of interest and presence of perfect information? Is it not precisely conflicts of interest and asymmetric information, all dosed with a hefty amount of blissful ignorance, which gets markets out of their bed every morning?

Martin Wolf, the purpose of doctors is very clear and it would be foolhardy for doctor regulators to stand over their shoulders and intervene. But let me ask you, what for you is the real purpose of financial markets, and banks. I ask that because if you just want to go ahead and control for control’s sake, then you are a just a freaking dangerous vigilante.

Here we are, in May 2015… with our banks still being regulated by some nuts, who have not yet clearly told us what they think the purpose of banks is; and then made sure we the society agree… freaking dangerous vigilantes they are!

PS. Now the Basel Committee regulators imposes purposeless credit-risk weights for determining the capital (equity) banks need to have against assets. Why do we not ask them for some purpose weights... to see what they can come up with?

Sir, Martin Wolf writes: “morality matters. As Prof Luigi Zingales argues, if those who go into finance are encouraged to believe they are entitled to do whatever they can get away with, trust will break down. It is very costly to police markets riddled with conflicts of interest and asymmetric information. We do not, by and large, police doctors in this way because we trust them. We need to be able to trust financiers in much the same way.” “Why finance is too much of a good thing” May 27.

But, do we not need to be able to trust our bank regulators too? I certainly don’t!

Anyone setting the weight for the capital (equity) requirements for banks when lending to government at 0%, and at 100% when lending to SMEs, must know that means that banks will lend more and at lower relative rates to the government than to SMEs. And that de facto means they believe that government bureaucrats are more productive using bank credit than SMEs.

Well, I refuse to believe that. I believe that if you believe something like that, you are either extremely dumb or a communist… in either case you’re not trustworthy.

First, India, as a developing country, can certainly not afford bank regulations that favors the allocation of bank credit to the safer past than to the riskier future… and so it urgently needs to get rid of the distortions that the Basel Committee’s credit risk weighted capital (equity) requirements for banks produce.

And second, with respect to its private sector banks, these could also benefit from a major re-capitalization plan, like the one Chile did in the early 80s. The central bank should issue bonds using the proceeds to acquire the banks’ non-performing loans (which will permit the reversal of all provisions) and the banks would commit to repurchase those loans from the Central bank, plus interests, before they can proceed with any dividend payments.

Sir, Sam Fleming and Chris Giles ask: “what can be done to restore the productivity levels needed to boost living standards…?” “The waiting game”, May 26.

But even though they point out “Investment is too low”, they do not even mention the effect that credit-risk-weighted capital (equity) requirements can have on that and on productivity.

The Basel Committee’ credit-risk-weight of governments is 0% while the weight of SMEs and entrepreneurs is 100%.

And that is something quite discussable, especially in
these days when governments announce they need to use financial repression in
order to impose informal haircuts on their obligations.

But that also translates de facto into the Basel Committee stating that the risk weight for bank credit not being used productively is 0% for government bureaucrats, and 100% for SMEs and entrepreneurs.

And only communists could think that has no negative effect on productivity.

Are you communists FT? If you’re not then it is high time you help me to ask regulators about the concept of productivity weighted capital requirements for banks? I mean something that gives our banks a more elevated societal purpose, than just being safe-mattresses, and housing or government financiers.

We read David Green stating that still to be answered “is whether the new regulations actually does what it was intended to do and whether the side effects are acceptable, whether they are intended or not”. And that is something that does not sound quite unimportant eh?

But then William Coen, head of the Basel Committee’s secretariat, tells us “We hear quite often about unintended consequences of our reform when, in fact, the effects of our reforms are actually fully intended; some just don’t like them”.

But here then is a question to Mr. Coen.

The Basel Committee uses credit-risk weighted capital requirements for banks were the weight of governments is 0% while the weight of SMEs and entrepreneurs is 100%... and that is something quite discussable, especially in these days when governments announce they need to use financial repression in order to impose informal haircuts on their obligations.

But worse, much worse, looked at from the opposite side, it tells us that the Basel Committee for Banking Supervision feels that the risk of bank credit not being used productively is 0% for government bureaucrats, and 100% for SMEs and entrepreneurs.

Is that really what you believe and have intended to say Mr Coen? Are you a communist?

Chris Giles and Sam Fleming write: “Economists now identify the problem of low productivity as one of the great threats to improved living standards, in rich and poor countries alike… The fact that companies have become less efficient at converting labour, buildings and machines into goods and services is beginning to trouble policy makers”, "No great shakes Weak growth turns into a problem of global proportions" May 26.

Regulator set up their credit-risk-weighted capital (equity) requirements for banks, based solely on who could most safely repay a bank loan, and not one iota based on who could best use a bank loan.

And so, as ideologues, they gave the government bureaucrats a zero percent risk-weight and an SME, or an entrepreneur, a 100 percent risk weight.

And FT, you still do not get what has gone wrong?

@PerKurowski

May 25, 2015

In it Luce asks “Should we charge Big Data for our personal data?” And my answer to that has for quite some time been, even to FT, that we should at least get a copyright on our own personal data, so as to have something to trade with.

I recently bought a Tuxedo shirt on the web, and since then I have been receiving many offers on Tuxedo shirts on the social media where I socialize. It crowds my computer and, in doing so, it definitely affects negatively my possibilities of going on with the rest of my own virtual life, as well as intruding on other ads trying to reach my immense purchasing power :-)

And so I believe that if all these content providers had to share some of the ad revenue they got from targeting me, with me, the owner of my own preferences, then we could put some order in the house, an order that could even benefit our Big Brothers. Frankly, I think that any advertiser would love this idea, as that would guarantee that the ad recipient looks more favorable, or even looks, at his ad… of course current advertisers would initially not like it too much… until they understand that would benefit them too.

Now on the issue of information and searches, there I might be a little bit more radical. Because there I would request that at least 50 percent of all search results provided by Google should be provided on a totally pro-bono basis. That is because it is much too important for us to know what the poorer outliers might be thinking, and because we cannot afford our information needs to be satisfied solely by information lobbyist.

Sir, Paul Robinson writes in his letter “The story unraveling before us is one of criminal minds working together to circumvent and deceive regulatory authorities that would leave any normal industry”

I will not discuss that but, in the same breath, it must be also be said that regulators, for whatever reasons, stupidity or ideology, criminally manipulated and distorted the bank credit markets in favor of the governments and against the citizens.

In 1988, with the Basel Accord (Basel I), regulators adopted the use of credit-risk-weighted capital (equity) requirements for banks and set the following risk weights: Lending to the government was given a Zero percent risk weight; and lending to the citizens’ SMEs and entrepreneurs was awarded a 100 percent risk weight… what more is there to say​?

In1988, with the Basel Accord (Basel I), regulators adopted the use of credit-risk-weighted capital (equity) requirements for banks and set the following risk weights: Lending to the government = Zero percent risk weight; and lending to the citizens’ SMEs and entrepreneurs = 100 percent risk weight.

Sir, with regulators displaying such a total loss of memory about the importance of the private sector; or ideologically engaging in such obnoxious manipulation and distortion of the bank-credit markets in favor of the public sector… of course hysteresis had to follow.

But, to have the slightest chance to regain our economies’ memory and vitality, we need to denounce what happened and to remove those who block such efforts… whether for reasons of mental sickness or sick ideology.

A good credit rating pedigree naturally results in easier, cheaper and more abundant access to bank credit… and that is how it should be.

And some even thought that some market participants, like the bankers, went overboard considering that credit risk pedigree. For instance, Mark Twain has been quoted holding that a banker is the one who lends you the umbrella when the sun shines and wants it back as soon as it looks its going to drizzle a bit.

But then, in 1988 with Basel I, and later in 2004 with Basel II, some too frightened bank regulation bureaucrats, told bankers that was not enough, and that they had to consider that same credit risk pedigree in their capital [equity] too.

And as you can understand any pedigree, no matter how good and correct it is, if it becomes considered too much, will generate the wrong response to that pedigree.

And so Boom! with that manipulation, a tremendous distortion was introduced into the markets of bank-credit… and which has had the real economy suffering from too much and too cheap credit to the AAArisktocracy, which includes the “infallible sovereigns”, and too little and too expensive credit to “The Risky”, like SMEs and entrepreneurs.

And I must say I find it fascinating how an anthropologist like Gillian Tett, writing in the Financial Times, does not find the introduction of such regulatory risk-aversion, to be interesting enough to comment on it. There’s got to be something more to it.

PS. I admit without problem to an obsession against these bank regulations that are destroying the world where my grandchildren will want to find good jobs in. What I do not understand is others´ obsession in ignoring this problem.

“How lucky could you be that you have a guy who spent his life studying the Great Depression [Bernanke], combined with a guy who’d spent almost his whole life working on every global financial crisis for the previous 20 years and was a genuine markets guy [Geithner], combined with somebody who had been chief executive and chairman of one of the top investment banks in the world [Paulson, in the leadership positions they were in during the biggest financial crisis of the century”

Sir, that is what James Gorman, “the Morgan Stanley boss”, tells Tom Braithwaite during his “Lunch with the FT”, “Banking is sexy, creative and dynamic” May 23. I first wince a little bit about the “genuine markets guy” since we really did not see a lot of genuine market solutions but, what really comes to my mind, is the following.

What if instead of these Giants, there would instead have been some perfectly inept in their government positions? It would clearly have been a much harder and harsher landing… but could it no be that in such case we would have gotten over the crisis faster and more completely? As is the experts might be experts smoothing things out during a crisis but perhaps not in solving it. As is we still live with much overhang in terms of huge government borrowings, QEs to reverse, the permanence of some actors the world could have been better off getting rid of, and the same source of distortion that caused the crisis, the credit risk weighted capital requirements for banks.

In August 2006 FT published a letter I sent it titled “Long-term benefits of a hard landing”, and year after year I find more reasons to argue for that. Sir, had there been a harder landing don’t you think that the system would for instance have cleansed itself more of “$22.5m” CEOs annual pay packages?

The smoothing of a crisis, though nice for some, creates its own victims… Our young, with lousy employment perspectives, could well be the victims of the capable Giant's guiding and smoothing hands.

May 22, 2015

Sir, you write: “The modern dependence upon credit for growth is too great for the capital that supports it to be treated casually”, “Shareholders punished for the sins of the trader” May 22. I am glad to see that you now at long last warn about the negative should-be-expected-unexpected consequences that fines can have. I have written to you several letters on this but, as usual, as your policy, these have been ignored.

I hope you now recommend what I have been recommending for quite sometime, namely the option for the authorities to collect those fines in newly issued bank shares, and which could then be resold some years later to the markets.

To collect fines from banks, in cash, against their equity, is basically societal masochism.

Sir, Caroline Binham quotes Martin Wheatley, head of the Financial Conduct Authority with opining that fines are working in order to stop foreign exchange manipulations, “Bank fines credited for culture shift”, May 22.

We will see if that’s so, cross your fingers. But, much more important though, for all of us, is to stop bank regulators from manipulating the credit markets with their credit-risk-weighted capital (equity) requirements for banks.

With that they distort the allocation of bank credit to the real economy, for absolutely no reason… since major bank crises never result from excessive bank exposure to what is ex ante perceived as risky.

Though Ms. Tett rightly advices that these derivatives need to be a genuine tool in risk management, and not just a technique for regulatory arbitrage… she keeps mum on the fact that the only reason for which they are used to arbitrage, is the availability of regulations that can be too easily arbitraged, or are too tempting to arbitrage, like the current credit-risk-weighted capital (equity) requirements for banks.

In short for risk-management instrument to be useful you have to remove the distortions made possible and provided by regulations… and for that to occur it is even more important that regulators grow up.

We can all wonder how immature regulators have to be to be looking at the risks of bank’s assets and not on how banks manage those assets… and we can all wonder how immature they have to be regulating banks without even defining their purpose... and we can all wonder how infantile they can be thinking themselves able to regulate with some formulas… that no one of them can explain.

Bank regulators, with their Basel Accord of 1988 decided, God knows why, that sovereigns were much safer than the citizens who make them up, and that therefore banks needed to hold much less equity when lending to sovereigns than when ending to citizens, like to SMEs and entrepreneurs.

And that, no matter how you want to bend it or hide it, means that banks, compared to a free market without these regulations, will lend more to sovereigns and less to citizens.

And that, no matter how you want to bend it or hide it, means a regulatory subsidy to sovereigns and a tax on citizens.

And this is an especially pernicious tax in a developing country that copycats those regulations, since risk-taking is the oxygen of any development.

FT, you know I have sent you more than a thousand of letters on this issue, and though you have been ignoring these the last decade, in November 2004 you did publish a letter in which I wrote: “We also wonder in how many Basel propositions it will take before they start realizing the damage they are doing by favoring so much bank lending to the public sector. In some developing countries, access to credit for the private sector is all but gone, and the banks are up to the hilt in public credits.”

Skapinker is of course right in his wishes… also because I believe it is very useful for a company to attract CEOs that do not give the factor of financial remuneration an importance weighting of, let us say, more than 50 percent.

But why not also help “the brave CEOs” to make up their mind. For instance what about limiting the tax-deductibility for the company of all salaries and bonuses paid to the CEO to 10 times the amount of the average (or median) salary paid in the company? That should be a good place to start sending out a discreet social message to corporations and their shareholders alike.

As compensation above that limit would be made with after tax profits that would stimulate everyone to make really sure the CEO has really earned it.

Surprisingly, or perhaps not so surprisingly, Wolf fails to even mention the absolutely extraordinary development that took place with the signing of the Basel Accord in 1988. In that accord, regulators, decided unilaterally and with no explanations given, that for purposes of the equity banks needed to hold, the sovereigns were assigned a risk weight of zero percent, while the citizens, those who really constitutes the backing of a sovereign, were risk-weighted with 100 percent.

That of course meant that those interest rates which were used as proxies for the risk-free rate, became subsidized risk-free rates and are not at all comparable to what existed before 1988.

That of course meant that banks would earn immensely higher risk-adjusted returns on equity when lending to the sovereign than when lending to the risky.

In November 2004 in a letter published in FT I wrote: “Our bank supervisors in Basel are unwittingly controlling the capital flows in the world. How many Basel propositions it will take before they start realizing the damage they are doing by favoring so much bank lending to the public sector (sovereigns)?” More than a decade later I still ask the same question and many still prefer to ignore that.

Undoubtedly, the rigging of foreign exchange rates, and of the Libor rate, needs to be condemned in the strongest way… But, for that to really happen, it must be through mechanisms that does as a minimum not cause Lex describe these in terms of being “astonishingly opaque”… and commenting in “Bank fines: the wrong reaction” that “how the agencies decide what fines to impose is a mystery to everyone, the banks included”.

But, that said, in terms of the real consequences to the real economy, all that fraudulent market rigging is peanuts when compared to the mother of all market riggings, that which bank regulators, probably unwittingly, did to how bank credits were allocated.

I mean let’s look at Basel I, II and III. For the purpose of deciding how much equity a bank has to hold against a credit they establish: Sovereigns = 0% risk weight; Citizens = 100% risk weight. Really, is that not as big as market riggings come?

How much more bank credit at low rates did not governments, the regulators’ bosses, receive because of that? How much less bank credit did not all the SMEs, entrepreneurs and start-ups around the world, receive because of that.

Of course we cannot fine regulators (unless we can prove bad intentions… like ideological manipulation)… but should we not shame them at least?

It states: “single-name credit default swaps, a derivative contract that tracks the risk of default by a company that sells bonds. Regulators sought to clamp down on the market after the crisis because it was widely blamed for helping to inflate the credit bubble”.

That is not telling it like it really was!

According to Basel II, if a bank wanted to hold a bond that for instance was rated BBB+, it needed to hold 8 percent in equity… meaning it could leverage about 12 to 1.

But, if it bought a CDS for that bond from an AAA rated company, like from AAA rated AIG, then it needed to hold only 1.6 percent in equity and could therefore leverage about 60 to 1.

And that is what really drove the incredible artificial demand for these CDS that helped to inflate the credit bubble.

If CDS are to work, as they should, they need to be traded on their own merits of how they provide insurance against defaults, and not because of regulatory distortions.

Do not let failed regulators get away with their own favorite version of history!

@PerKurowski

May 18, 2015

Sir, Jonathan Ford seems to agree with “mobile operators… offering customers control over how they use their data allowance online” but is a bit suspicious of their intentions since operators also “want content providers to hand over more of their revenues from advertising”, “Mobile ad-blocking risks becoming a barrier to innovation” May 18.

There is no question that there is a lot of fighting about the value to access us consumers, and if we do not find efficient ways to block ads, we will drown in these, and de facto become incommunicado.

We users, we must fight back for our rights.

If I am going to use my limited attention span, and my data allowances, to look at ads that are directed to me only because my own preferences and lifestyle is known as a result of being on social media or otherwise surfing the web… then it is really I who should be paid.

And I would gladly pay the content providers, for providing advertisers the information they need about me, and the operators a commission for providing me a collection service. How about a generous 15 percent to each one of them? And 70 percent to me :-)​

May 17, 2015

You know that the activity of SMEs and entrepreneurs is vital for sustainable growth.

You know that banks need to hold more equity when lending to the risky than when lending to the safe.

You know, I hope, that means banks can earn less risk adjusted returns on equity lending to the risky than when lending to the safe.

You also know banks are tight on equity.

You must know SMEs and entrepreneurs are most usually classified as risky.

And so you should be able to deduct, I hope, that bank credit is not going to flow sufficiently to SMEs and entrepreneurs.

And so you should know that much of ECB’s/Draghi’s QE provided liquidity, is just going to be wasted on inflating the value of the existing assets that already has owners… increasing for absolutely no purpose the existing inequalities.

May 16, 2015

Sir, In the Shrink and the Sage’s “Can we get used to anything?” of May 16, the Sage mentions “society-wide groupthink”. And the best example of current society-wide groupthink I can think of is “political correctness”.

I just came back from a week in Sweden. There I heard many expressing to me, in sotto voce, sort of ashamed, sort of “don’t tell anyone about this”, some very ordinary and human concerns about there being too many migrants and about the risk they felt that could dilute their meaning of being a Swede.

My immediate thought was that political correctness, if it blocks this way citizens from venting their concerns, then it must be a dangerous powerful growth hormone for extremism.

In other words, if you use a “That’s like Hitler” in response to too many of people concerns, then too many might end up thinking “That Hitler guy sound’s quite right for me”.

Let us never forget that the emotions involved in the not liking something for the wrong reasons, are just as strong as that of the not liking something for "the right reasons".

PS. My father suffered years of concentration camp because of Hitler. I don’t remember him saying, “That’s like Hitler” about anything or anyone… perhaps because he would never want to diminish Hitler’s evilness to something being sharable.

@PerKurowski

May 15, 2015

Sir, Gillian Tett hands out her disinterested advice on “How savvy asset managers can fend off the regulators” May 15. Although most of them are grown up men who can take care of themselves, some of “Society’s lottery winners” might indeed appreciate her concerns about their wellbeing.

That said I believe that the small businesses and entrepreneurs would be much more appreciative of Ms. Tett’s efforts on how they can fend off the regulators. You see Sir, these borrowers have seen their access to bank credit drastically curtailed, as a result of regulators allowing banks to hold much less equity when lending to the infallible sovereign or to members of the AAArisktocracy than when lending to them.

Ms. Tett who has so much access to hotshots, could she perhaps put a word in for “the risky”, by reminding regulators that these borrowers, though they do suffer a lot from bank crises, they have never ever caused one? It could perhaps also be useful for Ms. Tett to remind regulators that the future health of the economy, that on which banks’ stability most depends on, is helped by “the risky” having fair access to bank credit.

Who understands it? “Mario Draghi has warned central banks to beware of the risk that aggressive monetary easing, including mass bond buying, [that which he has been promoting in the ECB] could lead to financial instability and worsen income inequality.

How shameless can you be? As the former Chairman of the Financial Stability Board he is as responsible as anyone else for bank regulations that have completely distorted the allocation of bank credit to the real economy.

He is quoted saying “After almost seven years of a debilitating sequence of crises, firms and households are very hesitant to take on economic risk”. Yes but the truth is that by means of the credit-risk-weighted equity requirements for banks he supports, he and his colleagues are de facto ordering the banks not to finance economic risks.

And he has the toupee of arguing that if ECB had refrained from its QE action, this “would have penalized young people”. No! There is nothing that penalizes young people as much as excessive sissyesque risk-aversion present in current bank regulations. Mr. Draghi, do you really know what is a real terrorist attack on our children’s future? I tell you, again: A risk weight of 0 percent for a sovereign and of 100 percent for SMEs or entrepreneurs.

And Draghi also has the toupee of warning that ECB’s policies could “exacerbate wealth disparities”. Amazing. He must by now be well aware of that current regulations impede bank credit going to where it is most needed, to finance the future and give those who have little opportunities; and directs credit to where it is “safe”, to refinance the past and keep up the value of the assets that exist and already have owners.

What a laugh… how sad. If ever there have been incapable and failed risk managers, those are the current bank regulators. Here follows but some illustrations of it.

First, they set the equity requirements for banks based on the perceived risks of bank assets, more-risk-more-equity and less risk less equity, as if that has any real bearing on the risk of a bank. The risk of a bank depends on how banks manage the risk of their assets. And, if push comes to shove, since all major bank crises have been caused by excessive bank exposure to what was ex ante perceived as “safe”, the opposite requirement, less-risk-more-equity, would have been more appropriate.

Then they also entirely ignored the risk that their regulations would distort the allocation of bank credit in to the real economy, in such a way it would weaken it… and that nothing is as dangerous to banks as a weak economy.

Sir, frankly, had there been no regulators or bank regulations how many European banks do you think would have been allowed to leverage 20 to 50 times or more their equity? Does not zero sound like a good guess?

In 1999 in an Op-Ed I wrote: “The possible Big Bang that scares me the most is the one that could happen the day those genius bank regulators in Basel, playing Gods, manage to introduce a systemic error in the financial system, which will cause the collapse of our banks”.

And we still allow these clearly failed bank regulators to play Gods. Well shame on us!

May 12, 2015

And it came to me that the following could be The Primary Bank’s vey important and game changing Manifesto.

We, in the Home of the Brave, we refuse to hold less equity against those perceived as safe than against those perceived as risky. That discriminates against the fair access to bank credit of those SMEs and start-ups that build the foundations of our economy.

If we are required to hold 8 percent against a loan to a citizen, that is what we will hold if lending to the government, because we, in the Land of the Free, refuse to think of the American citizens as more risky than their government.

That means we will hold more equity than we are required to, and so risk-adjusted returns on equity will be somewhat lower than what other banks can generate.

But, our shareholders, and us the management, we are certain our way will, sooner or later, lead to much higher returns for all.

Reasoned audacity and pure crazy risk-taking is what brought us here and so, no matter how much regulators wants us to become risk-adverse, we refuse to deny our children and grandchildren the risk-taking that is necessary for them to have a good future with plenty of jobs.

I am not sure… the cleverer it becomes, the more credibility it gets and the bigger is its systemic danger. What will they do with the results… could these be influenced… like could a good and valuable character strait be acquired by someone offering a good price for it. And if it morphs into a character rating, what is one to do if one gets a non-employable rating? No, this is indeed very dangerous territory. Perhaps Lucy Kellaway should think it over again.

I stop here… just in case Lucy wants it very brief (but still I throw in an emoticon, even if that risks negatively affect her character analysis of me) J

Me and my constituency!

Me and my constituency!

FT, just so that you know:

Some very few regulators thinking they were capable of managing the bank risks of the world, caused and are still causing immense sufferings, and you Sir are refusing to help holding them accountable for that.

My wicked question to FT

When do banks most need capital, when the risky turn out risky, or when the "not-risky" turn out risky? --- Yep, I think so too!

Videos: The Financial Crisis

My credentials

I have more credentials than most to speak out on the financial crisis and the subprime financial regulations having spoken out loudly about that since 1997...which could be embarrassing to “experts” with weak egos.

Most of those who think of themselves so broadminded when asking for “out of the box thinking” are so very narrow-minded they can only accept what comes, if that outside box lies “within their own small networks”.

Thank you, Martin Wolf

And on July 12 2012 Wolf also wrote that when "setting bank equity requirements, it is essential to recognise that so-called “risk-weighted” assets can and will be gamed by both banks and regulators. As Per Kurowski, a former executive director of the World Bank, reminds me regularly, crises occur when what was thought to be low risk turns out to be very high risk."

And that is something that I of course also appreciate, but that yet makes me curious on why Wolf does not follow up on it.

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Closed for comments though not entirely

I don’t take comments here because I might not have the time to answer (or censor) them and I hate unanswered comments, but, if you want me to comment on something somewhere else invite me and I might show up: perkurowski@gmail.com

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Off-the-blog

One great perk I get from maintaining a blog like this is that it allows me to sustain many conversations with some great journalists who also need and wish to be kept “off-the-record” or as I call it “off-the-blog”.

Yet one wonders

Between January 2003 and September 2006, out of 138 letters to the editor that I sent to the Financial Times before I placed them on this blog they published these 15. Not bad! Thank you FT!

Unfortunately, since then and until the very last day of the decade, out of some 1.000 letters that you can find here, FT published none, zero, zilch. Of course FT is under no obligation whatsoever to publish any of my letters and of course one should not exclude the possibilities that my letters might have quite dramatically gone from bad to worse… yet one wonders.

My usual suspects are:

1. Someone in FT with a delicate ego feels his or her importance diminished by giving voice to a lowly non PhD from a developing country daring to opine on many issues of developed countries.

2. That FT has some sort of conflict of interest with the credit rating agencies that makes it hard for them to give too much relevance to someone who considers they have been given too much powers.

3. The FT establishment had perhaps decided there were only macro economic problems and not any financial regulation problems, and wanted to hear no monothematic contradictions on that.

4. That FT feels slightly embarrassed when someone repeatedly asks the emperor-is-naked type question of what is the purpose of the banks and realizing this was something FT should have itself asked a long time ago.

5. It is way too much oversight for FT to handle.

6. Or am I just supposed to be a living example of one half of the Financial Times motto, namely that of "without favour"Which one do you believe is closest to the truth?

A Blog is born

I like reading The Financial Times, or FT as it is known, and I frequently write letters to the editor and some of them that have indeed been kindly published, for which I feel thankful. But then I realized that all those letters to the editor that for reasons impossible for me to comprehend were never published, were condemned to an eternal silence not of their own fault, and so I decided to, at a marginal cost of zero, to resurrect them and keep them alive, right here.

English is not my mother language so bear with me and you’ll probably note when my letter has been published in FT by its correctness. Swedish is my mother language but I have not written anything serious in it for about 40 years and last time I tried, they just laughed their hearts out because of my démodés. Polish is my father language but, unfortunately, I do not speak a word of Polish, much less write it. Yes Spanish is my language, as I am from Venezuela and although I trust I write in it with great flair, I would still never dream of publishing an article in Spanish without having it edited by my wife.

And so friends here is my Tea with FT blog with my old and new letters to the editor. I hope you will share them with me now and again, and then again and again.

Welcome, and cheers, as I believe they say over there.

Per

PS. Just so that FT does not get too cocky and believe it is my only window to the world, I will now and again publish a letter sent to the editor of another publication.